Pressure mounts for Apple repatriate $40B in overseas cash

Apple is avoiding paying $13.8 billion in taxes on overseas earnings by doing what a growing number of large U.S corporations are doing with their foreign cash: keeping it away from U.S. shores.

An analysis of 60 large U.S. corporations by The Wall Street Journalfound that together they held $166 billion in earnings offshore in 2012. U.S. tax law typically allows companies to pay no taxes on profits earned in overseas operations, so long as that money is not brought back to the U.S. As a result, those companies shielded more than 40 percent of their annual profits from U.S. taxes.

Technology and healthcare companies are driving the trend. Collectively, those companies held $120 billion overseas in 2012, nearly three-quarters of the total held offshore by the companies that were examined.

Apple is among those companies, announcing that it held $40.4 billion in untaxed earnings outside of the United States as of September 29, 2012, one-third of the tech and healthcare total and just under a sixth of the analyzed group's total. Should Apple repatriate that cash, the company estimates it would owe $13.8 billion in taxes, just under the federal 35 percent tax rate.

Apple holds the cash in countries with a friendlier tax structure, and foreign income tax expenditures can be credited on U.S. taxes. Taking those factors into account, Apple, according to an expert consulted by the Journal, has paid less than five percent tax on its overseas earnings.

The question of what exactly Apple should do with its cash holdings has drawn a lot of attention of late, with one investor first leading then abandoning a push to get the company to disperse some of its massive earnings to shareholders by way of issuing preferred stock. Keeping so much of its earnings overseas, though, means that a good portion of Apple's cash cannot be given back to investors in the form of dividends or share buybacks.

Spokespersons for some of these large companies claim that the U.S. tax code is out of date, "penalizing" corporations for their "success" outside of the United States. They argue that Congress should encourage repatriation of foreign earnings by instituting a tax holiday, which would, they say, stimulate the U.S. economy. The last such tax holiday went into effect for a time in 2004, prompting the repatriation of some $312 billion in foreign earnings. Studies looking at the tax holiday, though, found no evidence of strong job creation. The companies, instead, used the money to repurchase shares and pay dividends.

The U.S. isn't the only country where Apple and other large companies are accused of ducking taxes. Last April, a report blasted Apple, Google, and Amazon for basing their operations out of Ireland and other countries for tax purposes, thereby avoiding paying about half the taxes they normally would in the United Kingdom.

In late February, another report from El Paísshowed Apple declaring an operating loss in Spain, despite Spanish Apple Stores sales being up 86 percent. Apple accomplished this by routing 99 percent of its Spanish sales through its Irish subsidiary. El País' report estimates that Apple paid about 2.6 million euros in taxes. Spanish tax credits, though, due to the technical operating loss, are estimated to have left Apple with a balance with the Treasury of about four million euros.

2) There is plenty Apple can invest in with that oversea's cash. I suspect there is a need for more data centers outside the US, especially in China right now and in India in years to come, not to mention centralized ones for S. America, Africa, Europe, and Asia Pacific.

I'm not sure why it's fair to tax that money twice. If they paid the tax in the country the money was made in, why do they need to pay again to move it into the United States? Seems like it should be one or the other.

The main effect of a "tax holiday" would be to train US corporations into never repatriating cash into the US under normal circumstances... just pay for some lobbying, buy a couple of senators (Disney-style) and wait.

The US tax code needs a lot of fixing (holes and exemptions removed, rates regulated), but a "tax holiday" would just create a bigger longer term problem by training companies into the undesirable behaviour.

I'm "hoarding" my money and avoiding taxes by not selling my AAPL shares. Perhaps I should be pressured to sell my shares and then repurchase them just so the IRA can get a piece of the action for my investment success (ok, would have been more successful if I had cashed out when it hit $700, but still).

I'm not sure why it's fair to tax that money twice. If they paid the tax in the country the money was made in, why do they need to pay again to move it into the United States? Seems like it should be one or the other.

Give companies a waiver on repatriation taxes for monies they bring back to the USA and spend on wages of employees paid under $100k/year. Not existing payroll, but new payroll. So if Apple was to create 50,000 new jobs, at an average wage of $80,000 each, they could repatriate the entire $40B tax-free over the course of ten years. But only the new jobs would be eligible....

The US policy on taxes is all wrong to begin with. If people or companies earn money, they are allowed to do whatever they desire with that money as long as they are within the confines of the law. Apple made money overseas? GREAT, hopefully it keeps the prices of things they make lower. The Tax code is full of major holes, plug them or better yet redo the entire system. a universal sales/use tax on everything in all directions with a 50k automatic deduction for anyone before it kicks in.... level playing field.

Where were these people screaming that Microsoft made too much money in the 1990's? Apple has been smart with their money and broken no laws in the process... do what you want Apple!!